Tuesday, August 16, 2011

Gold on my mind

This has nothing to do with gold, the metal that much covet and that led us into ruin during the Great Depression. No no, this has to do with the new "golden rule" that Merkel and Sarkozy announced in their joint news conference meant to deal with the contagion spreading to Italy and Spain. So what is this golden rule, you may ask. For many this conjures up the biblical notion, "do unto others as you would have done to yourself." Interestingly enough, this interpretation may vindicate an argument I had yesterday with Louis in regards to what exactly Germany is doing. His view is that Germany is merely dictating its own economic policies onto others. The EU exists for Germany to export it's export-driven, private-public ownership model. While it is true that the current policies followed by the ECB are basically the same policies the Bundesbank would've followed, I would not say that many of the privatizations being forced upon Italy and Greece are particularly German in nature. They more fit the mold of every bailout that has been led by Western powers since the IMF decided that the Washington Consensus was the right way to go. But unfortunately for Louis, and the rest of Europe, this "golden rule" has nothing to do with a sinister attempt to make other countries' economies in Germany's image:

In what may likely be the most ambitious proposal, Mr. Sarkozy and Mrs. Merkel outlined a plan for each of the euro zone governments to enact legislation that would constitutionally bind their governments to balancing their budgets. This “golden rule” would be expected to be enshrined in the constitutions of all euro members by the middle of next year, the leaders said.

Ah yes, that's what has been missing from EU negotiations, a balanced budget amendment. Nothing says pick you up by your bootstraps like a little legally binding spending limits. I truly hope this is a political ploy meant to calm down German and French voters fear of a "transfer union". If this is what European leaders really think constitutes coordinated fiscal policy, then we've got a longer road ahead than previously thought.